Israeli Tax Authority: Bitcoin an Asset, Not a Currency

The Israeli Tax Authority on Monday published a professional circular regulating taxation of virtual currencies, including the bitcoin. The Authority’s position is that these currencies are assets rather than currencies, and will be taxed accordingly.

According to the circular, investors in bitcoin or similar virtual coins will have to pay a capital gains tax on its value, at rates ranging from 20% to 25%. But individuals who trade in these currencies for business purposes will pay a value added tax (VAT) of 17% on top of the capital gains tax.

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On Monday, the value of one bitcoin was equal to 38,480.72 Israeli shekels ($10,937.83).

Bitcoin, the first decentralized digital currency, is a worldwide payment system. Its conception is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a publicly distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.

Because of bitcoin’s decentralized nature, states are unable to shut down or alter the network. The legal status of bitcoin varies considerably from country to country and is still undefined or changing in many of them. Some countries have explicitly allowed its use and trade, while others have banned or restricted it and similar cryptocurrency systems.

A week ago, the chairman of the Israel Securities Authority, Prof. Shmuel Hauser, announced that he would not not permit companies whose value is based on the value of the bitcoin to be included in one of the Tel Aviv Stock Exchange (TASE) indices. Hauser sent a letter to the TASE describing his suspicion regarding cryptocurrency.

Finally: back in 2017, an Israeli couple that was married by the Chief Rabbinate, agreed on the value of their Ketubah (to be paid out by the husband in case of a divorce) to be set at 30 bitcoins. Last week according to a report in Rotter, after just three months of marriage, the couple decided to go their separate ways, but the husband insisted on paying the current value of 30 bitcoins, about $330,000, rather than its value back at the time of the Chupah, when it was valued at $570,000.

A rabbinical court is deciding the dispute as we speak, meanwhile, the husband should thank his stars he did not get married in December, when 30 bitcoins would have cost him $600,000.

All of which probably serves as a good illustration of the fears of Israeli finance officials of the volatility of the bitcoin and why marriages and all the rest of our cradle-to-grave business, should be run with a more substantial currency.